Higher cost of fund key barrier to lower lending rates
Private banks still do not get funds from state-owned banks, and government entities and institutions at single-digit rates as pledged by Bangladesh Bank (BB) a year ago, it is alleged.
The necessity of funds at single-digit rates was acknowledged by stakeholders last year when the central bank persuaded banks to lower the lending rates, which were aimed to stimulate economic growth by creating low-cost financing to attract entrepreneurs to borrow and invest.
Industry insiders say non-availability of funds at single digit interests is the main barrier the private commercial banks are facing in lowering the lending rate to flat 9% as pursued by the government.
On July 2 last year, the then deputy governor of Bangladesh Bank Abu Hena Mohd Razee Hasan told the media that state-owned banks had agreed to channel funds to private banks at 6%.
"We did not get a single taka from state banks at 6% interest in the last one year. State banks and government institutions and entities are still looking for 10% rate against funds. In some cases, they even seek more for deposits or fixed deposit receipt (FDR)," CEO of a private bank has said, wishing not to be named.
"Only last week, officials of the Bangladesh Inland Water Transport Authority (BIWTA) sought 10% interest from a new-generation private bank. The BIWTA is willing to deposit a moderate sized fund and looking for a better rate. This is how things are going on," he adds.
On the issue, ABB Chairman Syed Mahbubur Rahman says: "The prevailing situation is against the banks' willingness to implement single-digit lending rates."
"However, we must comply with the directive of the government to serve national interest. But, I want to say that we need collective efforts to lower the bank rates for both lending and deposit," he adds.
He mentions that there was a pledge from the state-owned banks of lending to private banks at single digit interest. "State-run banks have scope to generate funds, which sometimes lie idle. Besides, different public institutions and entities generate a large amount of funds, which can help banks to facilitate interest rates cut," he says.
Meanwhile, speculations run high among private banks' top managements over the finance minister's recent announcement and rigidity on interest rates cut.
Talking to Dhaka Tribune, some senior bankers have said that in market economy the government cannot instruct banks to lower interest rates unilaterally ignoring the reality.
Contradicting the observation, former advisor to a caretaker government AB Mirza Azizul Islam notes that every government in leading market economy interferes into the affairs of interest rates if needed.
"The question is how the government wants this to be materialized? Sometimes, a government can give policy and/or fund supports. In the US, the Trump administration reduced the policy rates to facilitate banks to lower the lending rates last week," Mirza Azizul mentions.
"Only directive will not work. Policy support taking into consideration the economic circumstances may bring appropriate solutions," he thinks.